Does the Tax System Encourage too much Education?

Annette Alstadsæter

No 612, CESifo Working Paper Series from CESifo

Abstract: This paper provides an efficiency argument in favour of progressive labour income taxation. When the consumer faces a trade-off between investments in financial and human capital, a proportional comprehensive income tax tends to discriminate in favour of human capital investments. This effect is strengthened when education no longer is a pure investment, but also holds a direct consumption value. A comprehensive proportional income tax works as a tax subsidy on human capital investments, and it reduces the price of education as a consumption good. By introducing a progressive labour income tax, the efficiency distortion in the capital market may be partly neutralised.

Keywords: dual income taxation; optimal income taxation; human capital investment; consumption value of education (search for similar items in EconPapers)
Date: 2001
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Citations: View citations in EconPapers (1)

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